Executive Summary / Key Takeaways

• Strategic Footprint Optimization Drives Cost Efficiency: Cleveland-Cliffs is undergoing a significant operational transformation, idling six non-core facilities and mines to realize over $300 million in annual savings, with a target of a $50 per ton unit cost reduction in 2025.
• Policy Tailwinds and Automotive Resurgence: Robust Section 232 tariffs on steel and automotive imports, coupled with anticipated interest rate reductions, are poised to significantly boost domestic steel demand, particularly in the high-margin automotive sector, contributing an expected $250 million to $500 million annually to EBITDA by 2026.
• Vertical Integration and Technological Edge: CLF's unique vertical integration, including proprietary HBI production and exclusive Grain Oriented Electrical Steel (GOES) manufacturing, provides a formidable competitive moat, ensuring cost stability, supply security, and differentiated high-value products.
• Deleveraging and Enhanced Liquidity: Despite recent acquisitions, the company maintains strong liquidity of $2.7 billion and is prioritizing debt reduction with 100% of future free cash flow, aiming to quickly deleverage and unlock shareholder value through potential non-core asset sales.
• Disadvantageous Contract Expiration: The conclusion of the unprofitable ArcelorMittal /Nippon Steel Calvert slab supply agreement in December 2025 is expected to provide a substantial $125 million per quarter EBITDA boost, further enhancing profitability.

A Vertically Integrated Powerhouse Adapting to a New Era

Cleveland-Cliffs Inc. stands as a venerable institution in the American industrial landscape, tracing its roots back to 1847. Over its long history, CLF has evolved into a leading North America-based, vertically integrated steel producer. Its core business spans the entire steelmaking value chain, from the mining of iron ore and production of pellets and direct reduced iron (HBI) to ferrous scrap processing, primary steelmaking, and downstream finishing, stamping, tooling, and tubing. This comprehensive integration, particularly its focus on value-added sheet products for the automotive industry, forms the bedrock of its operational strategy.

The company's strategic responses to market dynamics are deeply informed by its integrated model and a commitment to domestic supply chains. In recent years, CLF has faced the cyclical nature of the steel industry, compounded by external pressures. 2024, for instance, saw the weakest steel demand since 2010, excluding the pandemic's immediate impact, primarily due to slowing automotive production, lagging construction, and high interest rates. These challenges underscored the need for decisive action, leading to a significant strategic transformation in 2025 aimed at optimizing its operating footprint and leveraging policy shifts.

Technological Moats and Operational Excellence

Cleveland-Cliffs' competitive differentiation is deeply rooted in its technological capabilities and integrated operational model. The company is not merely a steel producer; it is a master of its raw material destiny, a critical advantage in a volatile commodity market.

A cornerstone of its technological prowess is the Hot Briquetted Iron (HBI) facility in Toledo, Ohio. CLF is the first and only producer of HBI in the Great Lakes region. This facility produces a high-quality, low-cost, and low-carbon intensive HBI product. It can be used in blast furnaces as a productivity enhancer or in Basic Oxygen Furnaces (BOFs) and Electric Arc Furnaces (EAFs) as a premium scrap alternative. This internal sourcing of iron feedstock provides predictable costs and supply security, significantly reducing exposure to volatile global markets and unreliable foreign sourcing. The unique value of this HBI facility is even more evident as recent trade discussions could result in tariffs on pig iron, which would elevate the cost structure for competitors relying on international suppliers.

Furthermore, Cleveland-Cliffs is a leading and, crucially, the only producer of Grain Oriented Electrical Steel (GOES) in the U.S. GOES is a highly specialized product critical for the modernization of the electrical grid and the infrastructure needed for increased electric vehicle adoption. The company's proprietary ARMCO GOES technology is recognized globally, making its Butler Works facility indispensable for national energy security. This segment consistently achieves strong profitability due to the high barriers to entry and critical demand. In Q2 2025, CLF also commissioned a new $150 million Vertical Stainless Bright Anneal Line at its Coshocton Works. This state-of-the-art line utilizes a 100% hydrogen atmosphere with a recovery unit, replacing conventional acid-based processing. This innovation is expected to improve efficiency and quality for premium stainless steel used in high-end automotive and critical appliance applications.

These technological differentiators, combined with the company's ability to optimize its use of ferrous raw materials in its blast furnaces and BOFs, boost liquid steel output, reduce coke needs, and lower carbon emissions. By using pellets and HBI 100% made in the USA, Cleveland-Cliffs asserts that its hot-rolled coil production cost is highly competitive against any EAF flat-rolled mini-mill, especially given current busheling scrap prices. This integrated approach, supported by continuous investment in its assets (such as the planned AI integration for the Middletown blast furnace), forms a robust competitive moat.

Financial Performance and Strategic Initiatives

Cleveland-Cliffs' recent financial performance reflects a period of transition and the initial impacts of its strategic optimization. In Q2 2025, the company reported revenues of $4.93 billion, a 3% decrease from the prior-year period, primarily due to a 14% decline in direct automotive market revenues, partially offset by incremental tons from the Stelco acquisition. Despite this, Adjusted EBITDA improved significantly by $271 million from the prior quarter to $97 million, driven by record steel shipments of 4.3 million net tons, improved operational efficiency, and a $15 per ton unit cost decrease. The average selling price per ton of steel products also increased by $35 per ton to $1,015 in Q2 2025.

The first half of 2025 saw a net loss of $953 million, including $323 million of non-recurring charges related to idled facilities. This follows a challenging Q1 2025, which posted an Adjusted EBITDA loss of $174 million, largely due to underperforming non-core assets and the lagged impact of low steel prices from late 2024. The company's Q4 2024 also saw an $81 million Adjusted EBITDA loss, marking a trough in profitability due to weak automotive demand and lagged pricing.

In response to these challenges, CLF has undertaken aggressive footprint optimization initiatives. In 2025, it decided to fully or partially idle six operations, including the blast furnace at Dearborn Works, the Steelton rail mill, Conshohocken, Riverdale, and the Minorca and Hibbing Taconite mines. These actions are projected to generate over $300 million in annual savings, fully materializing in the second half of 2025, by streamlining operations and eliminating legacy inefficiencies. This strategic shift is expected to have minimal impact on flat-rolled steel output.

The acquisition of Stelco Holdings Inc. in November 2024 is another pivotal strategic move. Stelco , with its best-in-class cost structure and emphasis on spot sales, is expected to contribute $120 million in cost synergies by year-end 2025, with management confident in overachieving this target. The ability to utilize Stelco's excess coke production internally has already allowed CLF to let one third-party coke supply contract expire in June 2025, with another expiring at year-end, further reducing external procurement needs.

A significant financial tailwind on the horizon is the expiration of the slab supply agreement with ArcelorMittal (MT)/Nippon Steel Calvert in December 2025. This contract, which has become unprofitable due to pricing dislocations, is expected to provide a $125 million per quarter EBITDA boost, or approximately $500 million annually, starting in 2026.

Liquidity, Capital Allocation, and Outlook

Cleveland-Cliffs maintains a healthy liquidity position, with $2.7 billion in liquidity as of June 30, 2025, and no significant debt maturities until 2027. The company's capital allocation strategy is clear: prioritize debt reduction. Management intends to deploy 100% of future free cash flow towards deleveraging until its target leverage ratio is achieved. This strategy has been consistently applied after previous acquisitions, demonstrating a proven track record of rapid debt reduction. The company is also actively exploring the sale of non-core operating assets and idled facilities, with proceeds earmarked for debt reduction. Notably, idled sites like Riverdale, Steelton, and Conshohocken are attracting interest from data center developers due to their strategic locations and existing infrastructure.

Looking ahead, management is bullish on the second half of 2025, expecting it to be "much better than the first half." This optimism is underpinned by several factors:

• Cost Reductions: A target of a $50 per ton year-over-year unit cost reduction in 2025 relative to 2024, with an expected $20 per ton reduction from Q2 to Q3 2025.
• Automotive Recovery: Anticipates a $250 million to $500 million annual EBITDA benefit from the automotive sector's resurgence, incrementally materializing in H2 2025 and fully impacting results in 2026. This is supported by the "Buy American" incentive program for employees and the expected increase in domestic vehicle production due to tariffs.
• Capital Expenditures: Full-year 2025 capital expenditures guidance has been reduced to $600 million (from $625 million), and SG&A expenses are expected to be lower at $575 million (from $600 million). Significant CapEx reductions are also expected in 2026 and beyond.
• Strategic Projects: The Middletown project is being re-scoped to a substantially lower-cost initiative, focusing on fossil fuels rather than hydrogen, aligning with current energy priorities. The Butler GOES project remains highly accretive and on track.

Competitive Landscape and Risks

Cleveland-Cliffs operates in a highly competitive steel market, but its vertically integrated model provides distinct advantages. Unlike many EAF mini-mills (e.g., Nucor (NUE), Steel Dynamics (STLD)) that rely on scrap and imported pig iron, CLF's internal sourcing of iron ore, HBI, and coke provides cost stability and supply chain resilience. This positions CLF favorably against competitors vulnerable to volatile scrap prices and potential tariffs on imported metallics. The company actively advocates for a level playing field, arguing against exemptions for imported pig iron, which it views as creating an unfair cost advantage.

The competitive dynamics are also heavily influenced by trade policy. The Section 232 tariffs (25% on steel, increased to 50% on June 4, 2025, and 25% on imported automobiles and parts) are seen as critical for protecting the domestic industry from unfairly traded imports and foreign overproduction. CLF's management emphasizes the need for strict enforcement without exceptions, highlighting instances where foreign competitors (e.g., Nippon Steel (NPSCY) selling rail through tariffs) continue to exert pricing pressure. The company's strategic repositioning of Stelco (STLC) to primarily serve the Canadian market, rather than disrupting the U.S. market, also reflects a disciplined approach to competitive dynamics.

Despite the optimistic outlook, several risks warrant investor attention:

• Market Volatility: Steel and raw material prices remain cyclical and can impact profitability.
• Monetary Policy: Continued high interest rates could impede automotive and construction demand, delaying the anticipated recovery.
• Trade Policy Enforcement: Any weakening of tariff enforcement through exemptions or new trade agreements could undermine the benefits.
• Geopolitical Factors: Global conflicts and trade disputes can disrupt supply chains and demand.
• Operational Challenges: The successful execution of footprint optimization and strategic project re-scoping is crucial.

Conclusion

Cleveland-Cliffs is in the midst of a profound strategic transformation, shedding underperforming assets and sharpening its focus on its core, high-value integrated steelmaking capabilities. The company's unique vertical integration, coupled with its technological leadership in HBI and GOES production, provides a robust competitive foundation. Supported by favorable trade policies and an anticipated resurgence in domestic automotive production, CLF is poised for a significant rebound in profitability and cash flow generation in the second half of 2025 and beyond.

While challenges remain, particularly related to broader macroeconomic conditions and the consistent enforcement of trade protections, Cleveland-Cliffs' disciplined approach to cost management, strategic asset optimization, and commitment to deleveraging positions it as a compelling investment in the evolving American steel landscape. The company's ability to leverage its integrated model and specialized product offerings to capitalize on domestic demand and policy tailwinds will be key to unlocking its full value for shareholders.